Aiming for fair and accurate: a conflict of interest must be considered in judicial review. But how?

Most group disability policies are governed by the federal Employee Retirement Income Security Act of 1974. Although ERISA does not prescribe a standard of judicial review for benefits decisions, the U.S. Supreme Court addressed this issue almost 20 years ago in Firestone Tire & Rubber Co. v. Bruch.

The justices held that where a plan provides the administrator with "discretionary authority to determine eligibility for benefits" a court is to review the benefits determination with a "deferential standard of review." They also stated that where the administrator has been granted appropriate discretion but is "operating under a conflict of interest, that conflict must be weighed as a factor in determining whether there is an abuse of discretion"

The opinion, however, did not explain how a court was to do this.

Since Firestone, the circuit courts have been split as to how a conflict of interest should be taken into account on judicial review of a discretionary benefit determination. The majority of circuits apply a "sliding scale" type of approach, giving more weight to the conflict when it is shown that the benefit determination was the result of bias.

Recently, in Metropolitan Life Insurance Co. v. Glenn, the Supreme Court attempted to resolve the split among the circuits and provide guidance on how the conflict of interest is to be considered. The Court held that, first, an ERISA administrator that both decides and pays claims operates under a conflict of interest; and second, the conflict of interest must be considered in determining whether the administrator abused its discretion in denying the claim.

In Glenn, the insured was covered by an employer-sponsored disability plan. Benefits were provided through a group disability policy with MetLife, who also administered the plan. Glenn was diagnosed with a heart condition and applied for disability benefits. MetLife determined that Glenn could not perform her own job, and encouraged Glenn to apply for Social Security disability benefits, which were granted.

After the initial 24-month period, MetLife determined that Glenn was not disabled from the stricter "any occupation" definition of disability and terminated her benefits. After exhausting her administrative remedies, Glenn filed suit under ERISA. The district court upheld MetLife's determination.

But the 6th U.S. Circuit Court of Appeals reversed the lower court, finding that MetLife operated under a "conflict of interest" because it both decided eligibility for benefits and funded those benefits. The Supreme Court granted certiorari to consider two questions: whether MetLife's dual role constituted a conflict of interest; and how such a conflict is to be considered.

While the Supreme Court decision makes it very clear that an Insurer who both administers and pays benefits is acting under a conflict of interest, what is not so clear is exactly "how" such a conflict should be taken into account on judicial review. Relying on Firestone, the Court held that "a conflict should be weighed as a factor in determining whether there is an abuse of discretion."

However, the Court explained it could not come up with a "one-size-fits-all procedural system that is likely to promote fair and accurate review." Instead, the Court focused on conflict as one of many factors that a court should consider when reviewing "the lawfulness of benefit denials."

As with Firestone, only time will determine Glenn's actual impact upon judicial review.

Frank N. Darras, a Best's Review columnist, is a partner with Shernoff Bidart Darras Echeverria LLP, Claremont, Calif. He is a plaintiff's lawyer representing disabled insureds. He can be reached at [e-mail].